One securities watchdog or 13?

In referring its legislation to create a national securities regulator to the Supreme Court, the Harper government is asking what appears to be a simple and straightforward question: “Is the proposed Canadian Securities Act within the legislative authority of the Parliament of Canada?”

But the issues are actually exceedingly complex, in both constitutional and political terms, and the outcome is by no means a foregone conclusion in favour of the feds.

In an era when most important constitutional cases arise from the 1982 Charter of Rights, the securities reference goes right to heart of the division of powers between the feds and the provinces in the British North America Act of 1867, now styled the Constitution Act.

Charter tests usually involve Article 2 (freedom of speech and association), or Article 7 (security of the person), or Article 15 (equality rights). But the securities reference is a classic test of BNA federalism in terms of Ottawa’s powers in Section 91, known as the POGG (Peace, Order and Good Government), and the powers of the provinces in Section 92.

The division of powers is the fundamental bargain of Confederation. The fathers of Confederation could have put securities and market regulation into the trade and commerce provisions of Section 91. But they didn’t. They put them under property and civil rights of Section 92. Provincial, not federal.

As a result, we have 13 provincial and territorial regulators and no federal regulation of the country’s markets. The banks are federally regulated, but not the market, the TSX, their shares trade on. Go figure.

As BMO president and CEO Bill Downe put it in a strong endorsement of the federal legislation: “Countries much smaller than ours are more successful in building relationships internationally because they speak with one voice. Canada speaks with many voices.”

It’s hard to know what the founding fathers were thinking, but that’s what they decided. Sir John A. Macdonald would have preferred a unitary state, with the provinces relegated to the role of local governments. But then he wouldn’t have been the father of our country because the provinces insisted on powers of their own, as well as asymmetrical features such as denominational school boards in Quebec in Section 93 and the recognition of both French and English as languages of the courts and legislature of Quebec in Section 133.

The existence of 13 regulators may be inefficient, but the Supreme Court isn’t being asked to settle a practical issue. It’s being asked whether Ottawa is within its constitutional jurisdiction. The court is highly conscious and extremely respectful of the division of powers.

And when the court rules, it will want at all costs to avoid a split decision, pitting its three Quebec members against their six colleagues from the common law provinces.

This case has already revived the Quebec-Alberta alliance that was badly shaken by the Charest government’s negative comments about the oilsands compared with the green energy source of hydro-electricity.

Alberta obviously opposes the notion of the Calgary-based TSX Venture Index being regulated from Toronto, the obvious site of a national regulator. And even with an opting out provision, no Quebec premier, least of all a federalist one, can allow a federal power play anywhere in provincial jurisdiction.